COMPREHENSIVE ANNUALCOMPREHENSIVE ANNUAL

FINANCIAL REPORTFINANCIAL REPORT

THE CITY OF NORMAN, OKLAHOMATHE CITY OF NORMAN, OKLAHOMA

FISCAL YEAR ENDING JUNE 30, 2011FISCAL YEAR ENDING JUNE 30, 2011

ON THE COVER – “Oklahoma Sooner Football” – on autumn Saturdays, Norman, Oklahoma and Gaylord Family/Owen Memorial Stadium becomes the center of activity in the state of Oklahoma and one of the liveliest places in amateur sports. The Oklahoma Sooners are the most successful college football program of the modern era (the 65 years since World War II) and sport many of the most recognized traditions in sports. Pictured on the cover is OU’s official mascot, the Sooner Schoo-ner® driven and administered by the OU RUF/NEX, the oldest university-based spirit organization in the country. The Schooner symbolizes a historic Conestoga wagon, pulled by Shetland ponies, representing a vehicle that may have transported families into the former Indian Territory, including Norman, which was opened for settlement in the first “Oklahoma Land Run” in 1889. Also pictured is The Pride of Oklahoma marching band, and some of the more than 85,000 fans who have sold out Owen Stadium for more than 80 consecutive games over 13 years. ABOVE and On Divider Pages – The Norman campus of the University of Oklahoma is home to “Heisman Park”, a collec-tion of larger-than-life size bronze sculptures of the five Sooner winners of the Heisman Memorial Trophy, awarded annually to “the most outstanding college football player in the country.” (Photographs provided by City of Norman Information Technology Division staff, by permission of the University Of Oklahoma Department Of Athletics)

The City of

Norman, Oklahoma

Comprehensive Annual Financial Report

Fiscal Year Ended June 30, 2011

Prepared by:

City of Norman Finance Department

Introductory Section

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The City does not operate hospitals, schools, or public transportation systems. Special districts and governmental entities with independent authority administer the public hospital, public schools and the university within the City. The City contributes to a public transportation system operated by the University of Oklahoma, which operates throughout Norman. The Council is required to adopt a final budget by no later than ten days before the close of the fiscal year. This annual budget serves as the foundation for the City’s financial planning and control. The budget is prepared by fund, department and category (e.g., salary and benefits). Department Managers may transfer resources within their department as they see fit. Transfers between departments, however, need special approval from the City Manager. Transfers between funds need Council approval. Local Economy; Relevant Financial Policies The City of Norman is located in the geographic center of Oklahoma and is within the Oklahoma City metropolitan area. Norman’s quality of life is sought by people of all ages and in all walks of life, and is demonstrated in the population growth over the past ten years. The University of Oklahoma, National Severe Storms Laboratory and National Weather Service, Hitachi Computer Products, U.S. Postal Service Technical Training Center, SYSCO Food Services Corporation, Astellas Pharmaceuticals Corporation, Chickasaw Nation Industries, Office Max Business Services and Johnson Controls/York International Unitary Products Group are some of the leading institutions and businesses located in Norman. In May 2010, the United States Armed Forces Reserve Center was centralized in Norman with the construction of a major new facility. One of the best indicators of the economic condition of the City is the evaluation of trends in some key factors. Sales and use taxes and franchise fees collectively represent 61% of the City’s total General Fund revenue. Overall, sales tax collections increased 4.59% from FYE 2010 levels. Collections from the City’s franchise fees (charges to private electric, natural gas and cable companies to operate within the City’s rights-of-way) decreased 0.5% from FYE 2010 levels. Sales tax receipts increase in proportion to the level of retail sales and therefore provide a good indication of the economic condition of the community. The FYE 11 increase reflected a return to a more normal rate of growth in sales tax, after the recessionary years of 2009-2010. Trends in City sales tax for the last ten fiscal years are illustrated below:

10-YEAR SALES TAX HISTORY, IN % CHANGE FROM PRIOR YEAR

3.48%

7.07%

3.87%

5.46% 5.40%

6.68%

3.28%

-1.89%

4.59%3.90%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

FYE 02 FYE 03 FYE 04 FYE 05 FYE 06 FYE 07 FYE 08 FYE 09 FYE 2010 FYE 2011

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Since sales and use taxes and building permit revenues are a primary source of the City’s general governmental revenue and are by nature volatile, and because Norman is subject to volatile weather conditions which can necessitate significant unexpected expenditures during the course of the budget year, the City must budget conservatively and maintain sufficient fund balances to absorb any shortfalls that may occur. As a result of this factor, the City has maintained a six percent (6%) targeted reserve of operating fund balances by policy to account for unexpected expenses and possible shortfalls in revenue. The City’s General Fund balance did not meet this target level in the current year. The City has also budgeted an additional two percent of budgeted expenditures for emergency operations. It is the City’s policy that one-time revenues not be used for operating purposes. The drawdown of General Fund balances to meet operating expenditures in recent years has conflicted with that policy. The City also targets a fund balance level in other operating funds of at least eight percent (8%) of budgeted expenditures to protect citizen/customer service delivery from unexpected revenue shortfalls or cost overruns. The City also seeks to set utility rates within utility enterprise funds at a level to meet average net income and reserve requirements over a five-year period without the need for interim adjustments. The City’s unique Charter requirement that utility rate increases must be approved by a majority vote of the people of Norman makes this policy more difficult to achieve. Effective in fiscal year 2011-2012, the City has changed its General Fund balance policies. A new Net Revenue Stabilization Fund (or “Rainy Day Fund”) has been established. Under City policy, three percent (3%) of budgeted expenditures will be required by ordinance to be held in fund balance, two percent (2%) will be required by ordinance to be appropriated into a General Fund Emergency Reserve account and at least three percent (3%) and up to four and one-half percent (4.5%) of expenditures will be required by ordinance to be held in Net Revenue Stabilization Fund balance. The enabling legislation for the “Rainy Day” fund establishes restrictions upon the appropriation of fund balance in the new fund. Long-term Financial Planning The long-term financial status of the City’s major operating funds (General Fund and Special Revenue Funds) is driven in large part by personnel expenses. These operating funds have extremely low employment levels and the City of Norman has a relatively small workforce, in comparison to most comparable cities. The City also provides relatively generous employee benefits, particularly for health insurance and retirement (information on employee benefits is given in the Notes to Financial Statements Section). Much of the City’s long-term financial planning efforts in the general governmental service areas relate to controlling the rate of growth in these employee costs. The financial status of the City’s utility enterprise funds are driven in large part by capital expenditures. Major capital improvement programs are under way in the Water and Wastewater Utility operations, financed by ratepayer revenues, a temporary sales tax dedicated to sewer improvements (expired in October, 2006), and development charges. The Council, acting as Trustees of the Norman Utilities Authority, has studied future improvements and expansion that are needed to the Norman Water and Wastewater Treatment Plants. Voter referenda may be required to provide adequate ratepayer funding for these needed improvements.

iv

Major Initiatives During fiscal year 2010-2011, the City took several measures to strategically plan for future infrastructural and operating needs. A citizen’s committee made its final report and the Council adopted a Stormwater Master Plan to address long-standing storm drainage and water quality concerns. Continued study will be done in advance of voter referenda for the establishment of a Norman Stormwater Utility and potential general obligation bonds to finance storm drainage and water quality needs that have been inadequately funded in the City’s General and Capital funds. Discussion was also had of a proposed capital program to improve Norman’s streets and transportation systems, leveraging federal Surface Transportation Program matching funds. On March 1, 2011, the voters of Norman approved a rate increase for the Sanitation Utility. This rate structure will enable the current level of services to be maintained. On November 8, 2011, the voters of Norman approved general obligation bond funding to expand and renovate the Norman Animal Shelter. Approximately $3 million will be expended during calendar year 2012 to make the improvements to serve Norman’s animal welfare and public safety needs. At the Norman Water Treatment Plant, the first phase of planned improvements was completed in fiscal year 2010-2011. These improvements include the installation of an emergency power generator, replacement of filter media, replacement of an 8 million gallon primary clarifier, and replacement of the Plant’s high frequency pumps with more energy-efficient variable frequency pumps. The new variable frequency drive pumps were partially funded from American Recovery and Reinvestment Act grants through the U.S. Department of Energy. Future phases of planned and necessary improvements to the Water Treatment Plant will improve treatment standards to improve the quality of Norman’s drinking water and expand the treatment capacity of the plant. At the Norman Wastewater Plant, major improvements have been completed to the facility’s sludge handling processes, partially funded by federal grants. The facility has reached a level at which the treatment capacity must be expanded and treatment standards improved to meet federal and state regulations. Sewage treatment capacity expansion and effluent quality improvements have been planned since the adoption of the Norman Wastewater Master Plan in 2001. It is anticipated that voter referenda will be proposed in 2012 to proceed with the construction of these planned improvements. Awards and Acknowledgements The Government Finance Officers Association (“GFOA”) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial Report (“CAFR”) for the fiscal year ended June 30, 2010. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both accounting principles generally accepted in the United States of America and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to the Certificate of Achievement program requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate.

Financial Section

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Management’s Discussion and Analysis

As management of the City of Norman (the “City”), we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2011. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages i-v of this report. Financial Highlights The assets of the City exceeded its liabilities at the close of the most recent fiscal year by $442,488,825

(net assets). Of this amount, $20,676,948 (unrestricted net assets) may be used to meet the government’s ongoing obligations to citizens and creditors.

The City’s total net assets increased by $47,277,943. As of the close of the current fiscal year, the City’s governmental funds reported combined ending fund

balances of $63,048,013, a increase of $8,375,714 in comparison with the prior year. Approximately 79% or $49,726,855 was nonspendable, restricted, committed or assigned for specific purposes. Approximately 21% or $13,321,158 was unreserved and undesignated at fiscal year end.

At the end of the current fiscal year, unassigned fund balance for the general fund was $13,321,158 or 19 percent of total general fund expenditures.

The City’s total debt increased by $11,225,493 during the current fiscal year. The City issued $6,250,000 in general obligation bonds and drew down $1,308,641 in tax increment notes payable and $10,288,630 in utility system notes payable. The remaining decrease was due to normal payments.

Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. A brief description of the basic financial statements follows. Government-wide financial statements - The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The statement of net assets presents information on all the City’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, planning, city controller, parks and recreation, public works, public service and public safety. The business-type activities of the

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City include the Norman Municipal Authority (the “NMA”) and the Norman Utilities Authority (the “NUA”). The NMA operates Westwood Park and the City’s sanitation services. Westwood Park includes golf, tennis and swimming facilities. The NUA operates the City’s water and wastewater services. The government-wide financial statements can be found on pages 14-15 of this report. Fund financial statements - A fund is a group of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. A brief description of these funds follows. Governmental funds - Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains twelve individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the general fund, debt service fund, and capital projects fund, all of which are considered to be major funds. Data from the other nine governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with the budget. The basic governmental fund financial statements can be found on pages 16-18 of this report. Proprietary funds – The City maintains enterprise funds to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for NMA and NUA activities, which are both presented as major proprietary funds. The components of these funds are presented in additional detail in the form of combining statements elsewhere in this report. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The basic proprietary fund financial statements can be found on pages 19-21 of this report. Fiduciary funds – Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the

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resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on pages 22-23 of this report. Notes to the financial statements – The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 24-59 of this report. Other information – In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s progress in funding its obligation to provide pension benefits to its employees and a budgetary comparison schedule for the general fund. Required supplementary information can be found on pages 60-68 of this report. Also, this report presents certain other supplementary information such as combining financial information for non-major governmental funds, budgetary comparison schedules for non-major governmental funds and combining financial statements for enterprise funds and fiduciary funds. Other supplementary information can be found on pages 69-92 of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. In the case of the City, assets exceeded liabilities by $442,488,825 at the close of the most recent fiscal year.

2011 2010 2011 2010 2011 2010

Current and other assets 72,218,434$ 64,887,442$ 62,670,056$ 64,526,778$ 134,888,490$ 129,414,220$ Capital assets 235,191,426 198,412,802 182,890,444 166,559,543 418,081,870 364,972,345 Total assets 307,409,860 263,300,244 245,560,500 231,086,321 552,970,360 494,386,565 Long-term liabilities 47,678,053 41,061,511 43,733,772 37,171,058 91,411,825 78,232,569 Other liabilities 13,218,256 13,850,255 7,251,454 7,092,859 20,469,710 20,943,114 Total liabilities 60,896,309 54,911,766 50,985,226 44,263,917 111,881,535 99,175,683 Net assets:Invested in capital asets, net of related debt 206,982,527 175,482,607 149,829,383 146,472,150 356,811,910 321,954,757 Restricted 42,431,883 33,165,081 22,568,084 23,202,532 64,999,967 56,367,613 Unrestricted (2,900,859) (259,210) 22,177,807 17,147,722 19,276,948 16,888,512 Total net assets 246,513,551$ 208,388,478$ 194,575,274$ 186,822,404$ 441,088,825$ 395,210,882$

Net Assets

Governmental activities Business-type activities Total

As of June 30

By far the largest portion of the City’s net assets (81 percent) reflect its investment in capital assets (e.g., land, buildings, machinery and equipment and infrastructure), less any related debt used to acquire those assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

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An additional portion of the City’s net assets (15 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($20,676,948) may be used to meet the City’s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets, both for the government as a whole as well as for its separate governmental and business-type activities. There was an increase of $7.75 million in the net assets reported in connection with the City’s business-type activities. This increase was due to several factors. See below for more information. The governmental net assets increased by $39.5 million during the current fiscal year. This increase was due to several factors. See below for more information.

2011 2010 2011 2010 2011 2010Program Revenues: Charges for services 4,920,651$ 4,727,892$ 38,225,943$ 36,375,927$ 43,146,594$ 41,103,819$ Operating grants & contributions 6,771,145 8,143,742 - - 6,771,145 8,143,742 Capital grants & contributions 30,934,491 2,513,839 4,474,408 7,215,720 35,408,899 9,729,559 General revenues: - - Sales and excise taxes 56,146,152 53,601,698 1,038,715 1,562,722 57,184,867 55,164,420 Franchise taxes 6,228,264 6,262,225 - - 6,228,264 6,262,225 Property taxes 7,684,537 6,111,415 - - 7,684,537 6,111,415 State use taxes 2,187,289 2,179,503 - - 2,187,289 2,179,503 Other taxes 2,131,517 2,009,492 - - 2,131,517 2,009,492 Investment earnings 396,095 490,604 355,657 440,118 751,752 930,722 Miscellaneous 962,203 838,558 187,358 (205,141) 1,149,561 633,417 Total revenues 118,362,344 86,878,968 44,282,081 45,389,346 162,644,425 132,268,314

Expenses: General government 6,904,076 5,830,137 - - 6,904,076 5,830,137 Planning 2,944,363 3,345,225 - - 2,944,363 3,345,225 City controller 2,299,619 3,487,837 - - 2,299,619 3,487,837 Parks and recreation 4,951,495 5,909,298 - - 4,951,495 5,909,298 Public works 17,384,501 17,665,244 - - 17,384,501 17,665,244 Public service 2,777,749 2,964,057 - - 2,777,749 2,964,057 Public safety 41,050,651 41,750,244 - - 41,050,651 41,750,244 Interest on long-term debt 1,306,589 1,175,941 - - 1,306,589 1,175,941 Westwood park - - 1,475,445 1,485,522 1,475,445 1,485,522 Water - - 10,479,592 10,307,362 10,479,592 10,307,362 Wastewater - - 12,736,928 10,794,791 12,736,928 10,794,791 Sanitation - - 11,055,474 10,802,282 11,055,474 10,802,282 Total expenses 79,619,043 82,127,983 35,747,439 33,389,957 115,366,482 115,517,940 Change in net assets before transfers 38,743,301 4,750,985 8,534,642 11,999,389 47,277,943 16,750,374 Transfers 781,772 89,216 (781,772) (89,216) - - Change in net assets 39,525,073 4,840,201 7,752,870 11,910,173 47,277,943 16,750,374 Net assets, beginning 208,388,478 203,548,277 186,822,404 174,912,231 395,210,882 378,460,508 Net assets, ending 247,913,551$ 208,388,478$ 194,575,274$ 186,822,404$ 442,488,825$ 395,210,882$

Governmental activities Business-type activities Total

Change in Net AssetsFor the Year Ended June 30

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Governmental activities – Governmental activities increased the City’s net assets by $39.5 million. In the prior year, governmental activities increased the City’s net assets by $4.8 million. Key elements of this change are as follows: Sales tax revenue within the governmental activities (the City’s primary fund source) increased by

$2,544,454 or 4.75% over the prior fiscal year. This increase was due to the overall improvement within the economy as a whole.

Capital grants and contribution revenues increased by $28,371,647 or 1,128% from the prior fiscal year. Developers dedicate roadways and right-of-way to the City when they develop additions. In addition, the City works with the Oklahoma Department of Transportation (ODOT) on joint road infrastructure projects that become City property when completed. This increase is due to those factors.

Property tax revenue increased by $1,573,122 or 25.7%. This increase was due to an increase in the levy assessed to pay general obligation bond payments due in the current fiscal year.

General government activities increased by $1,073,939 or 18.4% over the prior fiscal year. Most of this increase was due to maintenance projects ($1,134,566) to various municipal buildings including roofs, mechanical and lighting.

City controller activities decreased $1,188,218 or 34.1% under the prior fiscal year due to the purchase of computer related equipment ($613,315) that was capitalized in the current year including several servers and software licenses.

Expenses and Program Revenues – Governmental Activities

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

$18,000,000

$20,000,000

$22,000,000

$24,000,000

$26,000,000

$28,000,000

$30,000,000

$32,000,000

$34,000,000

$36,000,000

$38,000,000

$40,000,000

$42,000,000

$44,000,000

general government planning city controller parks & recreation public works public service public safety

program revenues expenses

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Although governmental expenses exceed program revenue, most governmental activities are financed through taxes and other revenue sources. Revenues by Source - Governmental Activities

capital grants and contributions34%

charges for service6%

investment earnings0%

operating grants and contributions8%

miscellaneous1%

sales taxes30%

other taxes21%

Business-type activities – Business-type activities increased the City’s net assets by $7.75 million. In the prior year, business-type activities increased the City’s net assets by $11.9 million. Key elements of this change are as follows: Capital grants and contribution revenue decreased $2,741,312 or 38% over the previous fiscal year.

This decrease was due to grants in the amount of $3,280,746 for water and sewer system improvements via the Oklahoma Water Resources Board in the prior year compared to $719,254 in the current year. In addition, capital contributions from developers in the form of water and sewer pipe decreased $179,820.

Tax revenue decreased $524,007, or 33% over the previous fiscal year. This tax represents an excise tax on development to fund wastewater improvements. The decrease is due to a decrease in such development.

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Expenses and Program Revenues – Business-type Activities

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

$9,000,000

$10,000,000

$11,000,000

$12,000,000

$13,000,000

$14,000,000

$15,000,000

$16,000,000

$17,000,000

$18,000,000

Westwood Water Wastewater Sanitation

program revenues expenses

Revenues by Source – Business-type Activities

charges for service87%

capital grants and contributions10%

investment earnings1%

taxes2%

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Financial Analysis of the Government’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds – The focus of the City’s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of a fiscal year. As of end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $63,048,013, an increase of $8,375,714 from the prior year. Approximately 21 percent of this total amount ($13,321,158) constitutes unassigned fund balance, which is available for spending at the government’s discretion. The remainder of fund balance is either nonspendable, restricted, committed or assigned to indicate that it is not available for new spending. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unassigned fund balance of the General Fund was $13,321,158 while total fund balance reached $13,669,804. As a measure of the General Fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 19 percent of total General Fund expenditures, while total fund balance represents 20 percent of that same amount. The fund balance of the City’s General Fund increased by $317,428 during the current fiscal year compared to an increase of $1,226,807 in the previous year. Key factors in the current year increase are as follows: Sales tax revenues increased $949,777 or 2.84%. This increase was directly related to the increase in

the overall local economy. City controller expenditures increased $353,213 or 6.25%. Most of this increase was due to worker’s

compensation expenditures. The Debt Service Fund has a total fund balance of $3,668,619, all of which is reserved for the payment of debt service. The net increase in the fund balance during the current year was $1,156,035 due to increased property tax revenue to fund principal and interest payments on general obligation bond issues and judgments awarded against the City as they come due. The Capital Projects Fund has a total fund balance of $33,872,695. The net increase in fund balance during the current year was $5,446,590. This increase was due to receipt of $6,250,00 in general obligation bond proceeds and $1,308,641 in tax increment notes payable proceeds. In addition, $3,000,000 was transferred into the Capital Projects Fund from the Public Safety Sales Tax Fund to construct a new fire station on the east-side of town. Proprietary funds – The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the NMA and NUA funds were a negative ($383,497) and a positive $22,561,304, respectively. The total growth in net assets for these funds was $751,489and $7,001,381, respectively. Other factors concerning the finances of these two funds have already been addressed in the discussion of the City’s business-type activities.

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General Fund Budgetary Highlights During the year there was a $2,423,901 increase in appropriations between the original and final amended budget. Following are the main components of the increase: $896,457 in increases to the general government budget as a cost containment strategy. During the

fiscal year funds were transferred into the City Manager’s cost center from various within the City so that those funds would not be spent.

$606,492 in increases to the city controller budget primarily within Information Services for increases related to computer hardware items that were budgeted and encumbered in the prior year. Encumbrances are rolled from fiscal year to fiscal year until liquidated.

$368,666 in increases to the city controller budget for expenses associated with on-the-job injuries and worker’s compensation claims.

On June 28, 2011, the City adopted ordinance O-1011-58 changing the City’s reserve policy. The ordinance establishes that the General Fund will have an unappropriated reserve of at least three percent (3%) of annually budgeted expenditures, in addition to an appropriated emergency reserve of two percent (2%) of annually budgeted expenditures. In addition, the ordinance establishes the Net Revenue Stabilization Fund (i.e., “Rainy Day Fund”) which has a targeted balance of not less than three percent (3%) but not more than six percent (6%) of annually budgeted General Fund expenditures. The net difference between the General Fund amended budget and actual amounts received/expended can be briefly summarized as follows: General Fund revenues fell short of expectations by $155,535.

o Sales taxes were above expectations by $971,140 due to an increase in the local economy. o Franchise taxes fell short of expectations by $591,122 due to a lag in the recovery in that sector of

business. General Fund expenditures and encumbrances were below expectations by $6,211,888.

o City Manager expenditures were $911,001 below expectations. This was due to the movement of budgeted funds from other departments/cost centers to the City Manager’s cost center in order to save those funds as a response to slow recovering sales tax collections.

o Street Maintenance expenditures were $1,762,400 below expectations. This was due to the various storm debris cleanup costs that were unspent in the current year.

o City Council expenditures were $1,095,185 below expectation due to lack of expense of all the 2% reserve.

Net General Fund transfers were $248,785 more than expected. Transfers in from the Debt Service Fund were $851,496 more than expected and the amounts were transferred to cover the payment of judgments and settlements.

The City closed the year with a fund balance that was higher than what was budgeted by $4,024,192. Capital Asset and Debt Administration Capital assets – The City’s gross investment in capital assets for its governmental and business-type activities as of June 30, 2011, amounted to $417,820,713 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment, roads, highways and bridges. The total increase in the City’s investment in capital assets for the current fiscal year was 14% (a 18.5% increase for governmental activities and a 9.6% increase for business-type activities).

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2011 2010 2011 2010 2011 2010

Land 52,996,757$ 49,289,990$ 8,651,937$ 8,501,800$ 61,648,694$ 57,791,790$ Buildings and improvements 43,081,902 39,755,911 147,042,098 143,224,195 190,124,000 182,980,106 Machinery and equipment 35,011,264 32,776,296 83,474,264 81,764,665 118,485,528 114,540,961 Infrastructure 404,417,096 363,047,502 - - 404,417,096 363,047,502

Construction in progress 36,170,503 42,753,880 58,294,880 41,822,801 94,465,383 84,576,681 Less: Accumulated depreciation (336,486,096) (329,210,777) (114,572,735) (108,753,918) (451,058,831) (437,964,695) Total 235,191,426$ 198,412,802$ 182,890,444$ 166,559,543$ 418,081,870$ 364,972,345$

Capital Assets

Governmental activities Business-type activities Total

As of June 30

Major capital asset events during the current fiscal year included the following: The Lift “D” Force Main project was completed at a cost of $533,132. Various roadway projects were completed in conjunction with ODOT at a cost of $8,505,186. The

donated portion funded by ODOT amounted to $24,794,793. Certain road bond projects were completed at a cost of $4,700,014 consisting of rural road projects,

urban asphalt pavement projects and urban concrete pavement projects. A variety of street and roadway construction projects were underway; governmental construction in

progress as of the end of the current fiscal year had reached $36,170,503. A variety of water and sewer projects were underway; NUA construction in progress as of the end of

the current fiscal year was $58,033,723. Additional information on the City’s capital assets can be found in note 4 on pages 37-38 of this report. Long-term debt – At the end of the current fiscal year, the City had total bonded debt outstanding of $55,214,250. Of this amount, $28,495,000 comprises debt backed by the full faith and credit of the government and $239,250 is special assessment debt for which the government is liable in the event of default by the property owners subject to the assessment. The remainder of the City’s bonded debt represents bonds secured solely by specified revenue sources (i.e., revenue bonds) of $26,480,000. The City also had notes payable outstanding of $25,877,664 at the end of the current fiscal year and was secured by capital assets and specified revenue sources.

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2011 2010 2011 2010 2011 2010

General obligation bonds 28,495,000$ 25,915,000$ -$ -$ 28,495,000$ 25,915,000$ Special assessment debt with governmental commitment 239,250 319,000 - - 239,250 319,000 Revenue bonds - - 26,480,000 28,335,000 26,480,000 28,335,000 Notes payable 5,789,454 4,480,813 20,088,210 10,816,608 25,877,664 15,297,421 Total 34,523,704$ 30,714,813$ 46,568,210$ 39,151,608$ 81,091,914$ 69,866,421$

Outstanding Debt

Governmental activities Business-type activities Total

As of June 30

The City’s total debt increased by $11,225,493 (16 percent) during the current fiscal year. The key factors of this change were issuance of $6,250,000 in general obligation bonds payable, issuance of $10,288,630 in utilities system notes payable, issuance of $1,308,641 in tax increment notes payable and normally scheduled payments. The City maintained an “AA” rating from Moody’s for those general obligation debt issues that are rated by the service. The NUA maintained an “A” rating from Moody’s for those debt issues that are rated by the service. Additional information on the City’s long-term debt can be found in note 4 on pages 46-53 of this report. Economic Factors and Next Year’s Budgets and Rates The unemployment rate for the Oklahoma City metropolitan area which includes Norman is currently

5.0 percent, which is a decrease of .3 percent from a year ago. This compares favorably to the state’s average unemployment rate of 5.4 percent and favorably to the national average rate of 9.2 percent.

Inflationary trends in the region compare favorably to national indices. The City’s major source of revenue is sales tax revenue. Sales tax revenue increased 4.75% over the

prior year total. All of these factors were considered in preparing the City’s budget for the 2012 fiscal year. Requests for Information This financial report is designed to provide a general overview of the City’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Finance Director, 201 West Gray, Building C, Norman, Oklahoma, 73069.

Required Supplem

entary Information

Other Supplem

entary Information

Statistical Section

Oklahoma Sooner wide receivers Kenny Stills (above) and Jaz Reynolds (below)

Westside Grandstand, Gaylord Family-Oklahoma Memorial Stadium

 

Single Audit Reports

THE CITY OF NORMAN, OKLAHOMA

June 30, 2011

Single Audit Reports THE CITY OF NORMAN, OKLAHOMA June 30, 2011 REPORTS REQUIRED BY GOVERNMENT AUDITING STANDARDS Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .................... 1 REPORTS REQUIRED BY OMB CIRCULAR A-133 Independent Auditors’ Report on Compliance with Requirements Applicable to Each Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 and the Schedule of Expenditures of Federal Awards ................................... 3 Schedule of Expenditures of Federal Awards ....................................................................................... 5 Notes to Schedule of Expenditures of Federal Awards ........................................................................ 7 Schedule of Findings and Questioned Costs .......................................................................................... 8 Summary Schedule of Prior Audit Findings ........................................................................................ 10

 

1

Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of

Financial Statements Performed in Accordance with Government Auditing Standards

Honorable Mayor and Members of City Council The City of Norman, Oklahoma We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Norman, Oklahoma, as of and for the year ended June 30, 2011, which collectively comprise the City’s basic financial statements and have issued our report thereon dated December 9, 2011. Our report contained an explanatory paragraph describing the City’s adoption of GASB Statement No. 54 in the year ended June 30, 2011. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting

Management of the City is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the City’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies and, considered to be material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses as defined above.

2

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

This report is intended solely for the information of the governing body, management and others within the City and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Oklahoma City, Oklahoma December 9, 2011

 

3

Independent Auditors’ Report on Compliance with Requirements Applicable to each Major Program and Internal Control Over

Compliance in Accordance with OMB Circular A-133 and the Schedule of Expenditures of Federal Awards

Honorable Mayor and Members of City Council The City of Norman, Oklahoma Compliance

We have audited the compliance of the City of Norman, Oklahoma (the “City”) with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal program for the year ended June 30, 2011. The City’s major federal programs are identified in the summary of auditors’ results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal programs are the responsibility of the City’s management. Our responsibility is to express an opinion on the City’s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States of America and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City’s compliance with those requirements. In our opinion the City complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2011.

4

Internal Control Over Compliance

Management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City’s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Schedule of Expenditures of Federal Awards

We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City as of and for the year ended June 30, 2011, and have issued our report thereon dated December 9, 2011. Our audit was performed for the purpose of forming our opinions on the financial statements that collectively comprise the City’s basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

This report is intended solely for the information and use of the City Council and management of the City and federal awarding agencies and pass-through entities and is not intended to be, and should not be, used by anyone other than these specified parties.

Oklahoma City, Oklahoma December 9, 2011

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

THE CITY OF NORMAN, OKLAHOMA

Year Ended June 30, 2011

Federal Grantor/Pass-Through Grantor CFDA Pass-Thru FederalProgram Title Number Grantors Number Expenditures

U.S. Department of HUD Direct Programs: Community Development Block Grant #B-09 MC-40-0002 14.218 n/a 691,799$ Community Development Block Grant #B-10 MC-40-0002 14.218 n/a 65,793 HOME Investment Partnership Program #M-08 MC-40-0204 Home 08 (1) 14.239 n/a 97,444 #M-09 MC-40-0204 Home 09 (1) 14.239 n/a 102,496 #M-10 MC-40-0204 Home 09 (1) 14.239 n/a 386,906 Pass-Through Oklahoma State Department of Commerce: Emergency Shelter 10 14.231 14200 ESG 10 49,983 Emergency Shelter 10 14.231 14201 ESG 10 50,000 Emergency Shelter 10 14.231 14202 ESG 10 20,000 Emergency Shelter 10 14.231 14203 ESG 10 20,000 Emergency Shelter 10 14.231 14219 ESG 10 75,000 ARRA - Homelessness Prevention and Rapid Re-housing Program 14.257 13986 SHPRP 254,492 ARRA - Neighborhood Stabilization Program 14.228 13570-1-NSP 134,506

Total U.S. Department of HUD 1,948,419

U.S. Department of Energy Direct Program: ARRA-Energy Efficiency and Conservation Block Grant 81.128 DE-SC0001368 541,865 Pass-Through Oklahoma State Department of Commerce: ARRA-State Energy Grant - CNG Fast Fill Station 81.041 14220 SSEP 09 393,138

Total U.S. Department of Energy 935,003

U.S. Department of Interior Pass-Through Oklahoma State Historic Preservation Office Certified Local Government 15.904 08-612 7,680 Certified Local Government 15.904 10-612 7,100

Total U.S. Department of Interior 14,780

U.S. Department of Justice Direct Programs: Edward Byrne Memorial Justice Assistance Grant (JAG) 16.738 2010-DJ-BX-1234 33,311 Edward Byrne Memorial Justice Assistance Grant (JAG) 16.804 2009-SB-B9-0453 42,361

Total Department of Justice 75,672

U.S. Department of Homeland Security Pass-Through Oklahoma State Office of Homeland Security Citizen CORPS 97.053 130.005 4,879 Citizen CORPS 97.053 130.011 737 Law Enforcement Terrorism Prevention Program 97.074 102.007 61,379 Firefighter Assistance 97.044 EMW-2009-FO-01454 230,847

Total U.S. Department of Homeland Security 297,842

5

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS--Continued

THE CITY OF NORMAN, OKLAHOMA

Year Ended June 30, 2010

Federal Grantor/Pass-Through Grantor CFDA Pass-Thru FederalProgram Title Number Grantors Number Expenditures

U.S. Department of Health and Human Services Pass-Through National Association of County & City Health Officials ("NACCHO") Medical Reserve Corps 93.008 MRC 090333 2,704 Medical Reserve Corps 93.008 MRC 10 333 3,068

Total U.S. Department of Health and Human Services 5,772

U.S. Department of Transportation Pass-Through Oklahoma State Highway Safety Office DRE Training 20.600 AL-09-02-03-09 3,598 DRE Training 20.600 AL-11-02-03-11 21,532 Traffic and Alcohol Enforcement 20.600 K8-09-03-06-01 8,746 Traffic and Alcohol Enforcement 20.600 PT-10-03-28-02 1,377 Traffic and Alcohol Enforcement 20.600 K8-10-03-03-02 63,187 Pass-Through State Dept. of Transportation Highway Tree Program - High Meadows 20.205 SAFETEALU-10-08 10,213 Highway Tree Program - West Main Street 20.205 SAFETEALU-08-02 316 Highway Tree Program - Griffin Park 20.205 SAFETEALU-09-17 19,096 Safe Routes to School 20.205 SRS-155F(709)(710) 131 New Freedom 20.521 OK-57-X009-00 103,920 Pass-Through Association of Central Oklahoma Governments Public Fleet Conversion Grant 20.205 09-03 27,946 Congestion Mitigation & Air Quality - CNG Slow Fill Station 20.205 2010-r7-1109-03 99,739 Unified Planning Work Program - Traffic Counts 20.205 J/P 11767(25) 10,560

Total U.S. Department of Transportation 370,361

U.S. Department of Agriculture Forestry Service Pass-Through Oklahoma Dept. of Agriculture Food & Forestry Urban & Community Forestry Staffing 10.664 U&CF-10-01 10,000

Environmental Protection Agency Pass-Through Oklahoma Water Resources Board Safe Drinking Water State Revolving Fund 66.468 ORF-09-0021-DW 5,404,220 ARRA-Safe Drinking Water State Revolving Fund 66.468 ORF-09-0021-DW - Clean Water State Revolving Fund 66.458 ORF-09-0021-CW 3,177,848 ARRA Clean Water State Revolving Fund 66.458 ORF-09-0021-CW 719,254 Pass-Through Oklahoma Conservation Commission Wetlands Program Development Grant 66.461 CD 966400-01-0 108,463

Total Environmental Protection Agency 9,409,785

U.S. Department of Federal Emegency Management Pass-Through Department of Civil Emergency Management FEMA - Disaster Grant - Public Assistance May 10 Storm 97.036 FEMA-1917-DR-OK 165,152

TOTAL EXPENDITURES OF FEDERAL AWARDS 13,232,786$

See notes to Schedule of Expenditures of Federal Awards.

6

NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS THE CITY OF NORMAN, OKLAHOMA Year Ended June 30, 2011

7

NOTE A--BASIS OF ACCOUNTING The Schedule of Expenditures of Federal Awards (the “Schedule”) includes the federal awards activity of the City of Norman, Oklahoma (the “City”), and is presented on the accrual basis of accounting. The information in this Schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this Schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. NOTE B--LOANS The City has received loans in prior years through the Oklahoma Water Resources Board (“OWRB”) that were presented as federal awards in the year the funds were received. At June 30, 2011, the outstanding balance of these loans was $15,627,208, however, the amount not received in the current year are not presented as federal awards as the only continuing compliance requirement is to repay the loans. During the year ended June 30, 2011, the City received $9,301,322 in additional loans through the OWRB which are presented as federal awards in the Schedule. NOTE C--SUBRECIPIENTS Of the Federal expenditures presented in the Schedule, the City provided $14,990 in federal awards to subrecipients.

SCHEDULE OF FINDINGS AND QUESTIONED COSTS THE CITY OF NORMAN, OKLAHOMA Year Ended June 30, 2011

8

Section I--Summary of Auditors’ Results Financial statements Type of auditors’ report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? yes X no

Significant deficiency(ies) identified that are not considered to be material weakness(es)? yes X none reported

Noncompliance material to financial statements noted? yes X no Federal Awards Internal control over major programs: Material weakness(es) identified? yes X no

Significant deficiency(ies) identified that are not considered to be material weakness(es)? yes X none reported

Type of auditors' report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? yes X no Identification of major programs:

CFDAProgram Number

ARRA- Community Development Block Grants 14.228ARRA- Clean Drinking Water State Revolving Fund 66.458Clean Drinking Water State Revolving Fund 66.458Safe Drinking Water State Revolving fund 66.468ARRA- State Energy Program 81.041ARRA- Energy Efficiency and Conservation Block Grant 81.128

Dollar threshold used to distinguish between type A and type B programs: $396,984 Auditee qualified as low-risk auditee? X yes no

SCHEDULE OF FINDINGS AND QUESTIONED COSTS--Continued THE CITY OF NORMAN, OKLAHOMA Year Ended June 30, 2011

9

Section II--Findings Required to be Reported in Accordance with Government Auditing Standards: None to report for the June 30, 2011 period. Section III--Finding Required to be Reported in Accordance with OMB Circular A-133: None to report for the June 30, 2011 period.

SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS THE CITY OF NORMAN, OKLAHOMA Year Ended June 30, 2011

10

Findings Required to be Reported in Accordance with OMB Circular A-133 FINDING 2010-01 CFDA: 16.804 Deficiency: Expenditures reported per the June 30, 2010 Standard Form 245 Federal Financial Report do not agree to the underlying accounting records. Requirement: Reports of Federal awards submitted to the Federal awarding agency should include all activity of the reporting period and be supported by underlying accounting records, and fairly presented in accordance with program requirements. Potential Effects: Accurate, current, and complete financial results are crucial for the proper administration of grant activities in accordance with the requirements of the grant. As the quarterly financial reports do not properly reflect the activities of the grant the possibility exist for available funds to either be exceeded or not fully utilized. Cause of the Condition: There is currently no reconciliation or review process for the filing of the required financial reports. The Grant Director completes and files the reports based on his internally maintained records and does not reconcile the reports to the underlying accounting records maintained by the Finance Department. Recommendation: We recommend that the City develop a quarterly reconciliation process between the financial reports and the underlying accounting records. In addition, the financial reports should be reviewed for accuracy by the Finance Department prior to submission. City’s Response: The City will implement procedures to ensure the quarterly reporting matches the underlying accounting records. Current Status: The City implemented a policy in which grant managers now forward to the Accounting Department their reports for review prior to submission. The Accounting department checks to make sure they are accurate and agree with the underlying accounting records.

SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS--Continued THE CITY OF NORMAN, OKLAHOMA Year Ended June 30, 2011

11

FINDING 2010-02 CFDA: 16.804 Deficiency: The internal controls over expenditure approval for federal awards does not require the Grant Director’s authorization prior to payment or expenditure. Requirement: OMB Circular A-133 requires the auditee too develop necessary internal controls to ensure only allowable activities and cost are funded by federal awards. Potential Effects: The current internal controls could allow unallowable cost and activities to be paid with federal funds without the approval or knowledge of the Grant Director. Cause of the Condition: The various local Captains are authorized to create purchase orders and approve expenditures without any additional review or approval. The City uses the same purchasing procedures for general purchases as for federally funded programs. Recommendation: Controls should be implemented to ensure that Federal awards are expended only for allowable activities and that the costs of goods and services charged to Federal awards are allowable and in accordance with the applicable cost principles. We recommend that the City consider implementing additional internal control procedures related to authorization and approval of federally funded expenditures. As such, the federally funded expenditures should be reviewed and authorized by a second individual, preferably someone with knowledge of the use of allowable funds in accordance with the related grant. City’s Response: The City will implement procedures to ensure all grant managers sign-off on expenditures before payment. Current Status: The City created an additional control process requiring that the grant managers sign-off on applicable invoices before they are paid.

City of Norman CAFR 6-30-11CAFR 12 09 2011 CAFR 12 09 2011

City of Norman Single Audit Reports 6-30-11